In his Budget speech, Arun Jaitley, Finance Minister said the Government was considering introducing legislative changes to confiscate the assets of absconding financial defaulters until they submit to the jurisdiction of the appropriate legal forum. Accordingly a draft Fugitive Economic Offenders Bill has been drawn up, on which the government has sought public comments by 3 June 2017.
Laws calling for the attachment of properties owned by wilful defaulters aren't new to the country. In fact, Section 82 of the Criminal Procedure Code, which covers “proclaimed offenders”, has a provision for attaching their properties. However, such attachment involves a multiplicity of proceedings, especially on the issue of the location of the assets. This has often led to conflicting orders of attachment by different courts and requirement of the district magistrate to endorse attachment if a property is outside the district of his jurisdiction.
The Prevention of Money Laundering Act, 2002 (PMLA) also provides for impounding of property, but it is consequent to conclusion of the trial, which leads to delays. In such a case appropriation serves more as a punishment for the offence after the guilt has been established than as a deterrent.
The Bill proposes to cover these lacunae, as it aims to help confiscate assets of high-value economic offenders absconding from India before they are actually convicted, and hold them until they submit to the jurisdiction of the appropriate legal forum.
The Bill adopts non-convictionbased asset confiscation for corruption related cases as recommended by the United Nations Convention (ratified by India in 2011) against corruption.
It also provides for setting up a Special Court, under the PMLA, which will be empowered to declare a person as a fugitive economic offender — one against whom an arrest warrant has been issued in respect of a scheduled offence and who leaves or has left India in order to avoid criminal prosecution or refuses to return to India to face criminal prosecution.
The burden of establishing an individual as a fugitive economic offender will be on the authorities. A scheduled offence refers to a list of economic offences contained in the Schedule to the Bill e.g. public servant taking gratification other than legal remuneration in respect of an official act, prohibition of manipulative and deceptive devices, insider trading , acquisition of securities or control, evasion of duties or prohibitions, nonpayment of deposits, carrying on business of a company with intent to defraud its creditors or members or for fraudulent or unlawful purpose etc. For ensuring that the courts are not overburdened with such cases, only those where the total values involved in such offences is Rs 100 crore or more are within the purview of the Bill.
On declaration of a fugitive economic offender, the following two consequences will follow:
- Any property, being a proceed of a crime that the person is accused of, along with any property owned by such an accused person in India will be confiscated and vested with the Union Government, free from all encumbrances;
- At the discretion of the court, such person or company where he is a promoter or key managerial personnel or majority shareholder may not be allowed to bring forward or defend any civil claim.
If during the course of the proceeding prior to the declaration the alleged fugitive economic offender returns to India and submits to the appropriate jurisdictional court, such proceedings would cease by law.
The provisions of the Bill will override other laws dealing with economic offences.
The Bill provides the necessary constitutional safeguards such as granting a hearing to the person through counsel, allowing him time to file a reply, serving notice of summons whether in India or overseas and appeal to the High Court.
The Bill also provides for appointment of an administrator after passing a confiscation order by the Special Court to dispose of the property to satisfy creditors’ demands. Where the confiscated property is subject matter of proceedings already commenced under the Insolvency and Bankruptcy Code, 2016 (IBC), the administrator will follow the priority prescribed under the IBC and if the proceedings have commenced under the Recovery of debts due to Banks and Financial Institutions Act, 1993 (RDBFIA) or The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), the administrator will follow the priority prescribed under RDBFIA and SARFAESI.
The Bill is drafted with the intent to preserve the sanctity of the laws of India and to discourage economic offenders from dodging Indian laws by remaining outside the realm of Indian courts.
The author is a partner at Shardul Amarchand Mangaldas & Co. The views expressed are personal.